June 30, 2012
Guttentag on the JOBS Act's Periodic Disclosure Requirements
Michael Guttentag (Loyola Los Angeles) presented his paper, Patching a Hole in the Jobs Act: How and Why to Rewrite the Rules that Require Firms to Make Periodic Disclosures (Indiana Law Journal, forthcoming), at the National Business Law Scholars Conference, which University of Cincinnati College of Law hosted on June 27-28. Here is the abstract:
This article considers if or when firms in the United States should be required to comply with federal periodic disclosure requirements. Such a consideration is timely. Provisions in the Jumpstart Our Business Startups Act of 2012 have made it much easier for firms to avoid federal periodic disclosure obligations, but these provisions were enacted based upon on a virtually non-existent legislative record and upended rules established only after careful consideration almost fifty years earlier.
Determining which firms should be required to comply with federal periodic disclosure requirements is best done in the context of a broader understanding of the history and economics of periodic disclosure regulation. This article provides such an understanding. The history of periodic disclosure regulation in the United States is traced back to its origins in the eighteenth century, and the economic analysis of periodic disclosure regulation is updated and refined to incorporate recent findings.
Building on this historical and economic understanding of periodic disclosure regulation, I consider anew if or when firms should be required to comply with federal periodic disclosure requirements. The analysis uncovers a flaw in the structure of the rules currently used to determine which firms must make periodic disclosures. To rectify this structural problem, I suggest that firms with a market capitalization of less than $35 million or fewer than 100 beneficial shareholders be granted an automatic exemption from periodic disclosure requirements. All other firms should be provided a choice between: 1) complying with federal periodic disclosure obligations, or 2) implementing measures that would mitigate the need for disclosure regulation, such as restricting share tradability or committing to an acceptable alternative disclosure regime.
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